How are Progress Payments Calculated?
Financing for construction projects works differently than mortgages for single-family homes. Construction projects start with vacant land. Therefore, lenders finance a plan. No guarantee that the project will reach completion exists. To keep the project moving forward and the crews motivated, lenders issue progress payments.
In general, lenders divide construction projects into five stages plus completion. Experienced construction crews have gone through this process. Thus, they work toward these milestones to receive payments promptly. Lenders also understand the costs of construction projects at every stage.
Those who develop homes and multi-unit structures for municipalities have worked under schedules. A schedule might look like this:
- Slab and base
- Roof and enclosures
Then, lenders assign a percentage to each milestone such as 16%, 26%, 24%, 20%, and 7% respectively. Thus, they take into account that the builders might request a deposit. So they set aside 7%. Lenders take the total amount approved and release the appropriate percentage at each stage.
In terms of the total amount, lenders explore the market and its conditions. For more construction projects, lenders finance 50% to 70% of the project. The applicant must provide the remaining 30% through other means.
Mortgage House loan specialists can dig deeper into the details of the construction loan. Plus, they can start evaluating your project.
Homebuyers can try our mortgage calculator online for free.
Calculate Progress Payments Conclusion
To calculate progress payments, Mortgage House loan specialists divide the project into stages. Then, they apply a percentage to each stage and disburse the funds when requested. For more information about construction loans, contact our team.